New Airline Alliances Shake Up Asia-Pacific Status Quo

Major airline alliance moves are shaking up the balance of power in the Asia-Pacific region as carriers look for new partners to help fulfill international aspirations.

Virgin Australia is forming an alliance with Singapore Airlines, the final pillar in the Australian carrier's strategy of tapping into other airlines' networks to give it global reach. Meanwhile, Malaysia Airlines (MAS), one of the region's largest unaligned airlines, is joining the Oneworld alliance. Kuala Lumpur-based MAS is expected to formally join Oneworld late next year, with Qantas Airways acting as sponsor.

“We've always said alliances would be something we would look at, at the right time,” says MAS CEO Tengku Azmil Zahruddin. And with the carrier about to add a lot of aircraft, “it's now the right time,” Azmil says.

MAS is taking delivery of five AirbusA330s this year, and next year it is scheduled to receive five or six Airbus A380s. Azmil says MAS is looking to operate the A380s to Australia, London Heathrow Airport and “probably Amsterdam.” The first A380 is due in April.

The move also has considerable benefits for Oneworld, which will strengthen its presence in Southeast Asia. Qantas CEO Alan Joyce notes that MAS's Kuala Lumpur base is “geographically well placed between our existing hubs.”

According to a joint statement, MAS intends to develop bilateral links with a number of the alliance's established members. It already code-shares with Oneworld carriers Cathay Pacific Airways and Royal Jordanian.

Three Oneworld members serve Malaysia, with Cathay Pacific, Japan Airlines and Royal Jordanian flying to Kuala Lumpur. Cathay also operates to Penang and, through its Dragonair affiliate, Kota Kinabalu. Oneworld says it will explore “opportunities for expanding the alliance's coverage of the country”—meaning new service is likely.

The Virgin Australia-Singapore Airlines agreement includes interlining from Aug. 1 and will be broadened to cover code-sharing and commercial cooperation, pending regulatory approvals. Executives from the two carriers expect these approvals to be granted by the beginning of 2012.

While the deal gives Singapore Airlines increased access to the Australian domestic market, for Virgin Australia it provides a vital component to its “virtual” international network. The carrier operates some flights to the U.S. through its V Australia subsidiary, but its strategy has been to extend international service primarily through partnerships with other airlines.

Virgin Australia has recently formed commercial partnerships with Etihad Airways and Air New Zealand and has received tentative approval from the U.S. Transportation Department for a linkup with Delta Air Lines. Etihad brings Europe connectivity, Delta extends Virgin Australia's transpacific reach and the Singapore deal will cover Asian destinations, including crucial markets such as China and India.

Virgin Australia CEO John Borghetti says the announcement completes the major alliance strategy the carrier launched 10 months ago. The airline has long signaled that it intended to add an Asian partner. The Singapore deal is critical to that strategy and is “an enormous game-changer for us,” Borghetti says.

The airlines do not intend to revenue-share, at least not initially, says Borghetti. If approved, their partnership would include cooperation on pricing and scheduling. Frequent-flier programs will also be linked. Equity stakes are not under consideration, the carriers say.

While the airlines' applications cover code-sharing across their entire networks, Virgin is primarily looking at connecting with Singapore's Asian network. An important caveat is that code-sharing can only occur in markets where governmental aviation agreements allow—so Singapore would still not be able to code-share on Virgin's Australia-U.S. flights.

Singapore Airlines CEO Goh Choon Phong says access to the Australia-U.S. market is something his carrier would like to achieve and will continue to push for.

Goh says he “does not expect [regulatory approval] to be an issue” in the Virgin Australia application, since the deal is pro-competitive and offers consumers greater choice.

Although the Singapore deal gives Virgin closer links to another major alliance player, the Australian carrier is still not showing much interest in joining one of the three global alliances. “There is so much stuff going on at Virgin Australia right now that [alliances are] not in our thinking at the moment,” Borghetti says. “That is something we will think about in 2012 and beyond.”

Borghetti does not rule out launching a flight to Singapore with Virgin's own aircraft. “That may or may not happen; we will talk it through,” he says.

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